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Market Analysis

Fundamental analysis: more losses for the euro after weak data

October 02, 2019
BY Michael Stark

The euro has made some losses against many currencies so far this week in the aftermath of poorer statistics from the eurozone. The most important of these was yesterday’s manufacturing data. Disappointing results seem to support the impression in stock markets that trade wars continue to have a strong effect on the outlook for the economies of EU nations.

After a brief retracement yesterday, euro-dollar has now moved back down towards $1.092. The common currency has also made ongoing losses against the yen to around ¥117.58 at the time of writing, a month low. On the other hand, the euro posted gains against the pound and the Aussie dollar to 89p and A$1.63 respectively.

Negativity from manufacturing data and trade

Probably one of the biggest factors in the euro’s ongoing decline against the dollar over the past few months is the Sino-American trade war. Tariffs and weak risk appetite in markets have driven some negativity, but knock-on effects on manufacturing outside the world’s two biggest economies are also key.

Yesterday’s manufacturing PMI from the euro area showed the biggest decline in manufacturing since October 2012. Purchasing, new orders and output all fell significantly. As well as the steep fall, 45.7 is the lowest final figure for EU factory PMI in seven years.

Central banks also in view

The weak outlook for European manufacturers is shared in the USA. Yesterday also featured ISM manufacturing PMI from the USA, with the figure dropping to 47.8. This is the biggest monthly contraction in American manufacturing for a decade. Some support came to EURUSD from this release, but debate has also started on whether the Fed might cut rates again at the end of the month as a result.

Some support also came to EURGBP and EURAUD from the latter countries’ central banks since last week. Michael Saunders of the Bank of England’s Monetary Policy Committee has been very negative in recent comments to parliamentary committees, indicating that a rate cut can’t be ruled out regardless the final form of Brexit. Meanwhile the Reserve Bank of Australia cut rates to a record low 0.75% yesterday morning.

EU data tomorrow before crucial NFP

A number of releases from the EU is due tomorrow morning. The most important of these is probably service PMI at 8.00 GMT. Traders will also be monitoring French and German national service PMIs slightly before this as well as eurozone retail sales for August at 9.00.

The most important data of the month though is due on Friday afternoon: the USA’s non-farm payrolls. The consensus at the moment suggests an increase of 145,000, about 15,000 more than the previous figure. Stay tuned to FX News on Friday for the latest updates before and after the NFP.

More losses possible for the euro

Fundamentals in general suggest that the euro might decline further into Friday morning against the dollar and the yen. It’s possible that EURUSD might test new lows during this period, but this isn’t very likely because most traders will wait for the NFP. One should also watch out for some of the key technical levels, especially euro-dollar’s $1.09, which has been an important support recently.

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